If you’re caring for an elderly parent, likely the last thing on your mind is whether that care entitles you to a tax break. But when you get a few moments, discussing available tax deductions and exemptions with a tax adviser could be well worth your time.
“Like pretty much anything having to do with tax law, there is the potential for missteps, and some of those can wind up being very expensive,” said Mark Luscombe, principal federal tax analyst with Wolters Kluwer Tax & Accounting. “If you know the rules, you can plan properly to avoid [mistakes], but that information isn’t within the purview of the average person. It’s really important in this kind of situation to seek guidance from a tax professional.”
1. Personal Exemption
First and foremost, Luscombe advised, you’ll want to figure out if a parent meets the criteria. Here’s what that criteria involves.
- Relationship. The person you are claiming as a dependent must be related to you. It shouldn’t be a problem when it comes to claiming a parent (in-laws and step-parents also are allowed). To claim a foster parent, he or she must live with you for a year as a member of your household, but otherwise, your parent does not have to live with you in order for you to claim him or her as a dependent.
- Income. Your parent must not have a gross income of more than $4,050 a year or more. Gross income does not include Social Security payments or other tax-exempt income.
- Support. You must provide more than half of the support for your parent during the year. If they are living in your home, fair market rent should be considered in the support, Luscombe said. Also included are amounts spent to provide food, clothing, education, medical and dental care, recreation, transportation and other necessities. Even if you do not pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent — If you and other siblings collectively pay more than half of your parent’s total support and you’re paying at least 10% toward the total amount making up the more than half, you can claim them.
Again, speaking to a tax professional is important when determining dependent eligibility as there are many nuances within the tax code. (The IRS audits a small percentage of tax returns, but you don’t want yours to be one, especially if you weren’t careful during the preparation) If you qualify, here are some tax benefits from caring for your parents that may help you maximize your refund.
2. Dependent Care Credit
If you paid another person to care for your parents while you worked or looked for work, you may be eligible to claim the child and dependent care credit. You (and, if you’re married, your spouse), must earn income during the year to take the credit. You must also be able to claim your parents as dependents. If you qualify, you can claim up to 35% of the expenses you paid toward one parent’s care up to a maximum of $3,000 in expenses. The limit is $6,000 if you paid dependent care expenses for both parents. The 35% claim allowance ends at the $43,000 income threshold, Luscombe warned, but no matter your income, you should be able to claim some allowance if you meet the other criteria.
3. Medical Expense Deduction
Even if you can’t claim your parents as dependents, you might be able to deduct medical expenses you paid. And the Internal Revenue Service allows you to use the the amount you pay for their medical care when itemizing your deductions if you can’t claim them as a dependent, but only when you can’t claim them based upon their income. Allowable medical expenses include prescription drugs, dental care, hospital stays, long-term care services and premiums you pay for your parents’ supplemental Medicare coverage.
More on Income Tax:
- How to File Your Taxes for Free
- How to Maximize Your Tax Refund
- Do Unpaid Taxes Affect Your Credit Report?